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Does inequality matter?

As Class releases Why Inequality Matters - a new publication based on the findings of The Spirit Level, Owen Jones asks do we really need to worry about inequality.

Does inequality matter? The leading lights of New Labour certainly thought not. ‘We are intensely relaxed about people getting filthy rich,’ Peter Mandelson once famously boasted, with the caveat ‘as long as they pay their taxes.’ By the time Labour lost power, it was clear that large numbers of rich people were not doing even that. For a generation, inequality has been increasingly dismissed as an airyfairy irrelevance: all that matters is that the living standards of all were improving. It has certainly been a long time since that has happened: four years before Lehman Brothers came crashing down, the real income of the bottom half began to flat-line; for the bottom third, it actually declined. The Coalition’s mantra that ‘We’re All In It Together’ has shifted between the ludicrous and the offensive ever since it came to power: while the average Briton faces the most protracted squeeze in living standards since the 1920s, the Sunday Times Rich List reveals an ever-booming elite.

But the case against inequality is not an abstract, moral argument. With an abundance of evidence, The Spirit Level dramatically revealed that it actually has an impact on people’s everyday lives. And as the Nobel Prize-winning economist Paul Krugman has shown, there is a link between inequality and financial crises. As he pointed out, it is no accident that both major modern crises – the first beginning in 1929, the second in 2008 – coincided with historic levels of inequality.

In part, this could be because of ‘common causation’: that free market or neo-liberal economics fuelled both inequality and economic crisis. But there are other theories too. As Robert Reich, the former US Secretary of Labour, put it: ‘The problem wasn’t that consumers lived beyond their means. It was that their means didn’t keep up with what the growing economy was capable of producing at or near full-employment. A larger and larger share of total income went to the people at the top.’

But Krugman discusses another theory: that as the wealthy spend more because they have more money, it encourages others to do the same. It’s ‘keeping up with the Jones’ on a massive scale. That meant saving less and borrowing to spend more. In the United States, household debt and inequality both soared in the run-up to the crisis. And – as Krugman has pointed out – inequality has helped sabotage government action to deal with the financial crisis, as the very wealthiest wield increasing political power and use it to pursue short-term self-interest.

Inequality also played a key role in some of the worst disturbances in post-war Britain. As research by Wilkinson and Pickett and others has shown, inequality weakens social cohesion and a sense of community, and produces more crime and violence. We saw, in part, the consequences of that in last August’s riots. Take London, one of the most unequal cities on Earth, where the top 10% receive 273 times more than the bottom 10%. We live in a hyperconsumerist society, where status has so much to do with what we wear or own: with such grotesque inequalities, there are those who feel excluded and can see what they are denied on an almost daily basis. A toxic mix of extreme inequality and consumerism had a clear role in the looting and riots.

Of course, there’s so much more: as Wilkinson and Pickett have shown, less equal societies tend to do worse when it comes to health, education and general well-being. But it is clear that the scourge of inequality has had a real role in the current intractable economic crisis. The pursuit of equality is not just a moral imperative, not just vital for the poor and for the social cohesion and wellbeing of society, it is also necessary for a stable economy. So just as the Beveridge Report, with its attack on the five great evils of society, underpinned the achievements of the 1945 Labour Government, the thinking of The Spirit Level and the pursuit of equality must play a pivotal role in the construction of the alternative policies which will replace those of our disastrous Coalition government.